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SRI funds "holding up" social businesses
Tanya Powley
03.09.09 16:08
Socially Responsible Investment (SRI) funds are holding back the development of smaller, younger social enterprises and businesses in the UK, according to a leading commentator on social busness investment.
Rodney Schwartz, chief executive of ClearlySo, is concerned the conservatism of SRI funds by investing mainly in big listed stocks is hindering the development of the social sector.
Schwartz said SRI funds typically only invest in large, liquid exchange-traded shares in order to give their clients' confidence of the fund's ability to perform well.
He said: "This behaviour has actually slowed, possibly severely, rather than accelerated the development of the social sector, as these funds have hoovered up the capital of socially minded investors and then backed traditional companies.
"Thus, rather than lead, the SRI funds have been a hindrance."
Schwartz said he can understand why SRI funds continue to follow this investment approach because they do not want to "rock the boat" in an investment sector which is booming.
Why not watch iBall TV's interview with Rod Schwartz?
A recent report by consultancy firm Booz Allen and Robeco has predicted the Responsible Investing (RI) market will reach $26.5 trillion worldwide in 2015, or 15-20% of total global assets under management.
The RI market has already come a long way since the introduction of the first ethical mutual fund in Canada by Vancity Credit Union in 1985.
Since 2003, the RI market's assets under management (AUM) have grown by 22% annually, while global AUM growth remained at 10%.
By the end of 2007, global RI AUM had reached $5 trillion. The US is currently the largest RI market with $2.7 trillion AUM, followed by the UK with $1.2 trillion AUM.
However, in terms of penetration, the RI AUM as a percentage of total AUM is the highest in the UK, with 20%. The US has just 10%.
These figures show there is a high number of socially-minded investors within the UK who are keen to invest ethically.
But, according to Schwartz, too many SRI funds just match the investment mainstream.
"Rather than upset things and go to the forefront of the space, the community has been satisfied to rest on its laurels, successes and profits and not do anything which may 'upset the applecart'," he said.
"As SRI funds are the vehicle of choice for socially minded investors, by sitting on their hands this way the SRI industry is actually blocking the development of the social business sector, thus making it more difficult for the sorts of businesses that, as they mature, would be exactly the kinds of companies we need to encourage, and they should be investing in."
However, Schwartz believes the industry will become increasingly under pressure from the public to change their approach.
"It has to change. Investors are getting much more cynical about their financial providers. If ethical funds more or less match the index, it will become much harder for them to charge extra which is what they have been doing," he said.
Read Rodney Schwartz's blog at www.clearlyso.com.